Padula: A look at how legal cannabis sales could affect the black market

By Gregg Padula

Thursday

Jun 28, 2018 at 10:00 AMAug 21, 2018 at 4:05 PM

The legalization of cannabis for recreational sale has already swept through eight states, including Massachusetts, and the District of Columbia. With several other states leaning toward approval, momentum for cannabis legalization continues to strengthen.

Each state has its own set of circumstances and motivation for supporting legislation that favors the acceptance of a taxable cannabis marketplace. Each pro-cannabis campaign presents its reasons why legalization could potentially yield positive social and economic results for the state. Common themes run through these campaigns, such as advocates claiming it will boost the state’s tax income and cut down the money and resources spent to keep small-time cannabis offenders behind bars.

However, there is one theory that weaves its way into almost every debate regarding the legalization of cannabis for recreational sale -- Can legalization weaken, and eventually eradicate the black market? There’s no simple answer, but we can look to other states who have already gone through this as a guide.

Technically, yes, legal sales could wipe out illegal sales. But, a handful of variables must first balance out, and this could take some time. The most important of these is whether the high-priced and heavily taxed legal cannabis sold in recreational shops will ever be able to compete with the far-less-expensive black market prices. Illegal cannabis will likely be cheaper for a long time, so I think it’s unlikely the black market will disappear quickly.

Since Colorado passed legalization in 2012, it has been reported that Denver police ended up confiscating more illegal cannabis plants. That’s because Colorado procrastinated in reviewing licensing applications, resulting in very few legal shops offering product during the initial hype after cannabis was allowed. Underground growers anticipated this and grew cannabis to meet the new demand, although they offered it illegally.

Once legal shops had the capability to produce enough cannabis to satisfy demand, the black market had grown so large that when combined with the newly functioning legal grow facilities, there ended up being a massive surplus of product.

California fell into the same trap. That state saw the same type of overproduction due to the same lag in organizing a sustainable system before legalizing the plant. According to U.S. Drug Enforcement Administration data on cannabis eradication, which indicates where law enforcement officers discover and destroy the crop, California accounted for more than 60 percent of all cannabis plants seized in the United States. This data was collected two years before California passed legalization of recreational cannabis.

Since then, the state has become saturated with cannabis. According to a study released by the California Department of Food and Agriculture at the beginning of this year, California produces 13.5 million pounds of marijuana annually, but Californians only consume 2.5 million pounds of it. This means the bulk of supply is exported illegally all over the country.

Oregon is also in the midst of a black market boom. The Oregon Liquor Control Commission (OLCC), the state agency charged with regulating Oregon’s two-year-old legal cannabis market, has reported that growers in the state are producing far more recreational cannabis than is being consumed at the retail level.

According to OLCC data, licensed cannabis cultivators produced more than 1 million pounds of dry cannabis flower in 2017. But retailers sold only 108,330 pounds to consumers. That leaves an additional 891,000 pounds unaccounted for -- presumably making its way to the black market.

Here in the commonwealth, a delayed start by the Massachusetts Cannabis Control Commission (CCC) in reviewing applications for recreational sale means the commission has yet to hand out a single license -- and we are less than two weeks away from the starting line. At this point, we aren’t expected to see any shops open until late summer -- leaving current medical dispensaries as the only storefronts for recreational cannabis purchase.

And with only 22 dispensaries currently operating in the state, experts are anticipating a total depletion of the legal cannabis supply in less than a week after sales start. While the medical dispensaries transition to public markets, they are required to put at least 35 percent of their product aside for patient-only purchase. This will leave the majority of legitimate patients cut off from the safe access they had been relying on until now.

It’s far too soon to know for sure how the legalization of recreational cannabis will affect Massachusetts, but using the aforementioned states as reference points certainly forecasts a flood of black market cannabis headed toward the commonwealth. Don’t panic; things will even out over time as it has elsewhere. The black market will expand, and then slowly deflate once the legal market begins producing enough cannabis to meet consumer demand. Once this is achieved, the exorbitant price hike of legal cannabis will fall, making it competitive to the street market.

Realistically, the only way to completely eliminate the black market is by federally legalizing cannabis. This would allow the FDA to control regulation and product testing in a way that is transparent to consumers who are weary of the loose state regulations which leave uncertainty in the safety of what they are consuming.

Gregg Padula is an employee of GateHouse Media New England. He has experience in several areas of the cannabis industry, and now serves as an advocate for both patients’ and workers’ rights. He can be reached at gpadula@wickedlocal.com.